U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X FORM 10-QSB
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From .........to........
Commission File No. 0-20310
SUPERIOR ENERGY SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 75-2379388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 Peters Road
Harvey, Louisiana 70058
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (504) 362-4321
1503 Engineers Road
Belle Chasse, Louisiana 70037
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No __
The number of shares of the Registrant's common stock outstanding on
July 31, 1998 was 29,267,023.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
6/30/98 12/31/97
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,854 $ 1,902
Accounts receivable - net 24,623 24,054
Inventories 4,243 1,778
Other 2,217 1,513
------ ------
Total current assets 32,937 29,247
Property, plant and equipment - net 67,629 51,797
Goodwill - net 35,895 35,989
Patent - net 977 1,027
------ ------
Total assets $137,438 $118,060
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,150 $ 5,976
Accrued expenses 4,416 3,872
Income taxes payable 802 893
------- ------
Total current liabilities 11,368 10,741
------- ------
Deferred income taxes 7,681 7,127
Long-term debt 22,075 11,339
Stockholders' equity:
Preferred stock of $.01 par value.
Authorized, 5,000,000 shares; none issued - -
Common stock of $.001 par value.
Authorized, 40,000,000 shares; issued,
29,267,023 29 29
Additional paid-in capital 78,767 78,590
Retained earnings 18,130 10,234
Treasury stock, at cost, 110,000 shares (612) -
------- ------
Total stockholders' equity 96,314 88,853
------- -------
Total liabilities and $137,438 $ 118,060
stockholders' equity ======= =======
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 1998 and 1997
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1998 1997 1998 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $ 24,311 $ 10,909 $ 47,013 $ 20,089
--------- --------- --------- ----------
Costs and expenses:
Costs of services 11,494 4,995 21,056 9,293
Depreciation and
amortization 1,856 672 3,517 1,163
General and
administrative 5,084 2,459 10,281 4,493
--------- --------- --------- ----------
Total costs and expenses 18,434 8,126 34,854 14,949
--------- --------- --------- ----------
Income from operations 5,877 2,783 12,159 5,140
Other income (expense):
Interest expense (369) (152) (599) (237)
Gain on sale of
subsidiary - - 1,176 -
--------- --------- --------- ----------
Income before
income taxes 5,508 2,631 12,736 4,903
Provision for income
taxes 2,093 868 4,840 1,618
--------- --------- --------- ----------
Net income $ 3,415 $ 1,763 $ 7,896 $ 3,285
========= ========= ========= ==========
Earnings per share:
Basic $ 0.12 $ 0.09 $ 0.27 $ 0.17
========= ========= ======== ==========
Diluted $ 0.12 $ 0.08 $ 0.27 $ 0.16
========= ========= ======== ==========
Weighted average common
shares used in
computing earnings
per share:
Basic 29,248 19,403 29,215 19,075
========= ========= ======== ==========
Diluted 29,567 21,190 29,529 20,621
========= ========= ======== ==========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,896 $ 3,285
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,517 1,163
Unearned income - (46)
Gain on sale of subsidiary (1,176) -
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable 510 (2,721)
Inventories (720) (104)
Other - net (69) 24
Accounts payable (533) 332
Due to shareholders - (862)
Accrued expenses (30) 11
Income taxes payable 56 (610)
------- --------
Net cash provided by
operating activities 9,451 472
------- --------
Cash flows from investing activities:
Payments for purchases of property and
equipment (17,132) (2,324)
Acquisitions of businesses, net of cash
acquired (2,610) (9,241)
Additional payment for business acquired (750) -
Proceeds from sale of subsidiary 4,247 -
------- --------
Net cash used in investing
activities (16,245) (11,565)
------- --------
Cash flows from financing activities:
Notes payable - bank 7,180 11,558
Proceeds from exercise of stock options 178 -
Purchase of common stock for treasury (612) -
------- --------
Net cash provided by financing
activities 6,746 11,558
------- --------
Net increase (decrease) in
cash and cash equivalents (48) 465
Cash and cash equivalents at beginning of
period 1,902 433
------- --------
Cash and cash equivalents at end of period $ 1,854 $ 898
======= ========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997
(1) Basis of Presentation
Certain information and footnote disclosures normally in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to rules and regulations of the Securities and Exchange
Commission; however, management believes the disclosures which
are made are adequate to make the information presented not
misleading. These financial statements and footnotes should be
read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 and the accompanying notes
and Management's Discussion and Analysis or Plan of Operation.
The financial information for the six months ended June 30, 1998
and 1997, has not been audited. However, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of
operations for the periods presented have been included therein.
The results of operations for the first six months of the year
are not necessarily indicative of the results of operations which
might be expected for the entire year.
(2) Business Combinations
The Company, pursuant to a stock purchase agreement dated June 5,
1998, acquired all of the outstanding common stock of Lamb
Services, Inc. and Tong Specialty, Inc. for $2,857,000 cash.
Additional consideration, if any, will be based upon a multiple
of four times the combined companies' average earnings before
interest, taxes, depreciation and amortization (EBITDA) less
certain adjustments. The additional consideration will be paid
on the second and third anniversary of the stock purchase
agreement, and in no event, will the total additional payments
exceed $28,143,000. Lamb Services, Inc. is engaged in the
business of providing new and reconditioned casing, tubing and
drill pipe handling equipment. Tong Specialty, Inc. rents power
tongs, power units and related equipment. The companies'
principal operating facility is in Lafayette, Louisiana, and a
sales office is maintained in Houston, Texas.
In 1997, the Company acquired all of the outstanding common stock
of six companies for a combined $50,210,000 cash, 1,520,000
shares of the Company's common stock and promissory notes
providing for payments of up to $20,655,000. The amounts
payable under the promissory notes are subject to certain
contingencies and are not reflected in the respective company's
purchase price. Each of the acquisitions were accounted for as a
purchase and the results of operations of the acquired companies
have been included from their respective acquisition dates.
The following unaudited pro forma information for the three and
six months ended June 30, 1997, presents a summary of
consolidated results of operations as if the acquisitions had
occurred on January 1, 1997 with pro forma adjustments to give
effect to amortization of goodwill, depreciation and certain
other adjustments together with related income tax effects (in
thousands, except per share amounts):
<PAGE>
(2) Business Combinations (continued)
Three Months Six Months
Revenues $18,715 $37,411
======= =======
Net earnings $ 2,498 $ 4,811
======= =======
Basic earnings per share $ 0.12 $ 0.24
======= =======
Diluted earnings per share $ 0.11 $ 0.22
======= =======
The above pro forma information is not necessarily indicative of
the results of operations as they would have been had the
acquisitions been effected on January 1, 1997.
(3) Earnings Per Share
In 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share
("FAS No. 128"). FAS No. 128 requires the replacement of
previously reported primary and fully diluted earnings per share
required by Accounting Principles Board Opinion No. 15 with basic
earnings per share and diluted earnings per share. The
calculation of basic earnings per share excludes any dilutive
effect of stock options, while diluted earnings per share
includes the dilutive effect of stock options. Per share amounts
for the three and six month period ended June 30, 1997 have been
restated to conform to the requirements of FAS No. 128. The
number of dilutive stock options and warrants used in computing
the three and six month earnings per share were 320,000 and
314,000, respectively, in 1998 and 1,786,000 and 1,546,000,
respectively, in 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation
Comparison of the Results of Operations for the Quarters Ended
June 30, 1998 and 1997
The Company experienced significant growth in revenue and net
income in the second quarter of 1998 as compared to the same
period in 1997. The Company has continued to focus its
acquisition efforts on the rental tool business and as a result,
61% of revenues in the second quarter of 1998 were generated from
the Company's rental tool operations as compared with 23% in
1997.
The Company's revenue increased 123% to $24.3 million for the
three months ended June 30, 1998, as compared to $10.9 million
for the same period in 1997. The majority of the increase is
attributable to the acquisitions that the Company completed in
1997, which primarily were in the rental tool area.
The Company's gross margin decreased to 52.7% for the three
months ended June 30, 1998, from 54.2% for the three months ended
June 30, 1997. This decrease was primarily due to level demand
for the Company's plug and abandonment and wireline services and
the increased costs of services resulting from our expansion of
plug and abandonment and wireline services into Texas.
<PAGE>
Depreciation and amortization increased 176%, to $1.9 million for
the three months ended June 30, 1998, from $672,000 for three
months ended June 30, 1997. Most of the increase resulted from
the larger asset base that has resulted from the Company's
acquisitions. General and administrative expenses as a
percentage of revenue decreased to 20.9% of revenue for the three
months ended June 30, 1998, as compared to 22.5% of revenue for
the three months ended June 30, 1997.
Net income for the three months ended June 30, 1998 increased 94%
to $3.4 million from $1.8 million for the comparable period last
year. Earnings per diluted share increased 50% to $0.12 from
$0.08 despite the diluted weighted average of common stock
increasing by 40% and an effective income tax rate increase of
15%. The strong increase in net income was primarily the result
of increased revenue generated by the Company's rental tool
operations.
Comparison of the Results of Operations for the Six Months Ended
June 30, 1998 and June 30, 1997
The Company's revenues increased 134% to $47 million for the six
months ended June 30, 1998 as compared to $20 million for the six
months ended June 30, 1997. The increase in revenues is the
result of the continuing expansion of the Company's oilfield
rental tool businesses and the result of the acquisitions the
Company made during 1997.
Gross margins increased to 55.2% for the six months ended June
30, 1998 from 53.7% for the six months ended June 30, 1997. The
increase in gross margin is the result of an increase in the
gross margin attributable to the rental tool businesses, which
tend to have higher gross margins than the plug and abandonment
business.
Depreciation and amortization increased 202% for the six months
ended June 30, 1998 over the six months ended June 30, 1997.
Most of the increase is the result of the larger asset base that
has resulted from the Company's acquisitions. General and
administrative expenses as a percentage of revenue decreased to
21.9% of revenue for the six months ended June 30, 1998 as
compared to 22.4% of revenues for the six months ended June 30,
1997. In the first quarter of 1998, the Company sold Baytron,
Inc. for a gain of approximately $1.2 million.
Net income for the six months ended June 30, 1998 increased 140%
to $7.9 million from $3.3 million for the six month period ended
June 30, 1997. Earnings per diluted share increased 69% to $.27
per share from $.16 despite the diluted weighted average of
common stock increasing by 43% and an effective income tax rate
increase of 15%.
Recently, oil and natural gas prices have decreased. Continued
depressed prices for oil, natural gas, or both could adversely
affect the demand for the Company's services and the Company's
results of operations.
Capital Resources and Liquidity
For the six months ended June 30, 1998, the Company had net
income of $7.9 million and net cash provided by operating
activities of $9.5 million, compared to $3.3 million and
$472,000, respectively, for the same period in 1997. The
Company's EBITDA increased to $15.7 million, exclusive of the
gain on sale of a subsidiary, as compared to $6.3 million for the
same period in 1997. The increase in net income, cash flow and
EBITDA was primarily the result of the acquisitions completed in
within the last year.
<PAGE>
In June 1998, the Company acquired all of the outstanding common
stock of Lamb Services, Inc. and Tong Specialty, Inc. for
$2,857,000 cash. Additional consideration, if any, will be based
upon a multiple of four times the combined companies' average
EBITDA less certain adjustments. The additional consideration
will be paid on the second and third anniversary of the stock
purchase agreement, and in no event, will the total additional
payments exceed $28,143,000.
In the first six months of 1998, the Company made capital
expenditures of $17.1 million primarily for rental equipment
inventory. Other capital expenditures included P&A equipment
spreads and renovation of the Company's new operating facility.
The Company, as of the end of the first quarter, consolidated all
of its New Orleans area sales and administrative functions in
this facility. During the second quarter, the Board of Directors
approved the purchase of up to 500,000 shares of the Company's
outstanding common stock. On June 30, 1998 the Company purchased
110,000 shares of treasury stock for approximately $612,000.
Subsequent to June 30, 1998, the Company purchased an additional
289,500 shares of treasury stock for approximately $1.4 million
dollars. As of August 14, 1998, the Company has purchased a total
of 399,500 shares of treasury stock at an average cost of $5.08
per share.
The Company, in the first quarter of 1998, made a final payment
of $750,000 in connection with the acquisition of Dimensional Oil
Field Services, Inc. In the first quarter of 1998, the Company
received cash proceeds of $4.2 million for the sale of Baytron,
Inc.
The Company maintains a Bank Credit Facility which provides for a
revolving line of credit up to $45.0 million, matures on April
30, 2000, and bears interest at an annual rate of LIBOR plus a
margin that depends on the Company's debt coverage ratio. As of
August 3, 1998, there was $22.6 million outstanding under the
Bank Credit Facility (currently 7.25% per annum). Borrowings
under the Bank Credit Facility are available for acquisitions,
working capital, letters of credit and general corporate
purposes. Indebtedness under the Bank Credit Facility is
guaranteed by the Company's subsidiaries, collateralized by
substantially all of the assets of the Company and its
subsidiaries, and a pledge of all the common stock of the
Company's subsidiaries. Pursuant to the Bank Credit Facility,
the Company has also agreed to maintain certain financial ratios.
The Bank Credit Facility also imposes certain limitations on the
ability of the Company to make capital expenditures, pay
dividends or other distributions to shareholders, make
acquisitions or incur indebtedness outside of the Bank Credit
Facility.
Management currently believes that the Company will have
additional capital expenditures, excluding acquisitions, of
approximately $6 million in 1998 primarily to further expand its
rental tool inventory. The Company believes that cash generated
from operations and availability under the Bank Credit Facility
will provide sufficient funds for the Company's identified
capital projects and working capital requirements. However, part
of the Company's strategy involves the acquisition of companies,
which have products and services complementary to the Company's
existing base of operations. Depending on the size of any future
acquisitions, the Company may require additional debt financing
possibly in excess of the limits of the current Bank Credit
Facility or additional equity financing.
The Company has considered the impact of the year 2000 issues on
its computer systems and has determined that it is year 2000
compliant. In addition while the Company is addressing the year
2000 issues with various third parties such as vendors and
customers, no assurances can be made that such external sources
will be year 2000 compliant.
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information ("FAS No. 131"). FAS No. 131 establishes
standards for the way public enterprises are to report
information about operating segments in annual financial
statements and requires the reporting of selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. The Company plans to adopt FAS No. 131 for the
year ended December 31, 1998.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on
April 30, 1998. (the "Annual Meeting").
At the Annual Meeting, Terence E. Hall, Ernest J. Yancey, Jr.,
James E. Ravannack, Richard
Lazes, Justin L. Sullivan and Bradford Small were re-elected to
serve as directors until the next annual meeting of stockholders.
(c) At the Annual Meeting, holders of shares of the Company's
Common Stock (i) elected six
directors with the number of votes cast for and withheld
for such nominees as follows:
Director For Withheld Approval
Terence E. Hall 26,037,166 29,050
Ernest J. Yancey, Jr. 26,037,166 29,050
James E. Ravannack 26,037,166 29,050
Richard Lazes 26,037,166 29,050
Justin L. Sullivan 25,731,666 334,550
Bradford Small 26,011,166 55,050
(ii) approved an amendment to the Company's 1995 Stock Incentive
Plan which increased the total number of incentive shares
that may be granted from 1,400,000 to 1,900,000. The number of
votes cast for and against the proposal were as follows:
For Against
24,410,090 1,573,899
With respect to this proposal, there were also 82,227
abstentions.
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is filed with this Form 10-QSB
27.1 Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SUPERIOR ENERGY SERVICES, INC.
Date: August 14, 1998 By: /s/ Terence E. Hall
Terence E. Hall
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Robert S. Taylor
Robert S. Taylor
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,854,000
<SECURITIES> 0
<RECEIVABLES> 25,250,000
<ALLOWANCES> (627,000)
<INVENTORY> 4,243,000
<CURRENT-ASSETS> 32,937,000
<PP&E> 73,587,000
<DEPRECIATION> (5,958,000)
<TOTAL-ASSETS> 137,438,000
<CURRENT-LIABILITIES> 11,368,000
<BONDS> 0
<COMMON> 29,000
0
0
<OTHER-SE> 96,285,000
<TOTAL-LIABILITY-AND-EQUITY> 137,438,000
<SALES> 47,013,000
<TOTAL-REVENUES> 47,013,000
<CGS> 21,056,000
<TOTAL-COSTS> 34,854,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599,000
<INCOME-PRETAX> 12,736,000
<INCOME-TAX> 4,840,000
<INCOME-CONTINUING> 7,896,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,896,000
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
